UAE carriers see brighter sky ahead
February, 04th 2011
DUBAI - With more than Dh500 billion earmarked by the government for future investments in bolstering aviation infrastructure, the UAE — home to five national airlines with mind-boggling growth strategies — has witnessed a phenomenal growth in civil aviation sector in 2010 despite many challenges.
Even during the worst crisis the global aviation industry had to undergo in 2008 and 2009, when most carriers across the world operated in the red and some even got grounded, UAE’s three established carriers — Emirates, Etihad and low-cost airline Air Arabia — bucked the trend. Not only did they make profit, but went on an expansion spree, adding new routes, new aircraft, and new staff.
Overall, 2010 was a good year for UAE airlines with the exception of the disruption caused by the volcanic ash during April,” says Saj Ahmad, chief analyst at FBE Aerospace, London.
“RAK Airways managed to fly again and other carriers like flydubai launched a slew of new routes and a new in-flight entertainment, a first for any low cost airline in the world. While there have been challenges with yield management and political upheaval (UAE-Canada spat), overall, the UAE carriers have proven once again that they are setting the pace for the industry. Emirates first half profits alone show that the airline is on track for a record in May 2011 when it reports full year earnings,” Ahmad said.
The outlook for 2011
The outlook for the aviations sector is brighter. “The omens look good both for network and low cost airlines. Low cost airlines will continue to capture huge volumes of traffic and network carriers are finally realising that their old business models of relying on just first/biz class passengers is dead and that they have to be more competitive on price and work to lower their operational costs to become efficient and profitable. Many are now doing that, despite complaining without proof that the likes of Emirates have some mythical state-backed advantage, but overall, in 2011, we’ll definitely see a much more rapid pace of growth and profitability in all regions of the world,” said Ahmad.
According to him, the key challenge will be to mitigate against fuel prices as this single element has the power to “undo” all the work towards lowering costs and increasing profitability. “Equally, there are a number of airlines still hoping that Boeing gets its act together and start delivering 787s, whether this happens is anyone’s guess since we don’t know if there are further delays next year,” he said.
Ahmad said airlines in the GCC region (except Emirates) will be looking to nudge towards breakeven. “After years of spending money on new airplanes, staff, equipment and expanding new routes, these airlines now have to show that they can be profitable enterprises too. While there won’t be any GCC major network airline aside from Emirates to make big profits, curtailing losses will be a big challenge since the likes of Qatar Airways and Etihad have yet to prove that their quality of service can also translate into a quality run business,” he said.
While 2010 saw the fast-track growth of flydubai, the budget carrier from Dubai, the rebirth of RAK Airways, several months after it was scrapped amid the global financial turmoil, signalled the return of buoyancy and confidence to the country’s aviation landscape.
Another defining moment for the aviation sector was the launch of cargo operations at Dubai’s new Al Maktoum International Airport at Dubai World Central in June. Emirates Airline became the first carrier to land its aircraft at the airport, projected to be world’s largest. The opening of the airport on June 27 marked a new chapter in Dubai’s emergence as one of the world’s leading aviation hubs. Passenger operations are slated to start up at the end of March 2011.
When completed, Dubai World Central Al Maktoum International will be the largest airport in the world with five runways, four terminal buildings and capacity for 160 million passengers and 12 million tonnes of cargo. Phase 1 of the airport will feature one A380 capable runway, 64 remote stands, one cargo terminal with annual capacity for 250,000 tonnes of cargo and a passenger terminal building designed to accommodate five million passengers per year.
In the short term, Dubai World Central Al Maktoum International will increase the airport capacity of Dubai to accommodate the 48 per cent increase in cargo volumes from 1.9 million to the three million tonnes anticipated by 2015. In the long term it will serve as a multi-modal logistics hub for 12 million tonnes of freight and a global gateway for the 150 million passengers per annum that are expected to pass through Dubai by 2030.
In 2010, Flydubai has become one of the world’s fastest-growing, start-up airlines by expanding its fleet to 13 Boeing 737. Ghaith Al Ghaith, chief executive officer of Flydubai, has said, “We are thrilled to welcome new aircraft into our fleet. These new additions show flydubai’s continued growth, with 13 planes now servicing 28 routes in just 18 months. These numbers show phenomenal growth and we show no sign of slowing down, with ambitious growth plans that see us expanding still over the coming months. Our four new aircraft are at the cutting edge of air travel and we are certain our customers will enjoy the added comforts that these new planes have to offer.
RAK Airways relaunch
During September, RAK Airways relaunched operations. The carrier, operating from Ras al Khaimah airport, launched services to Kozhikode near the end of the month. The carrier launched services to Jeddah in Oct-2010 and announced plans to at the end of the month, and has announced plans to operate five weekly frequencies to each destination over the 2010-11-winter schedule.
The UAE now has two low-cost carriers following different business models. The flydubai model is simple, with customers paying only for the services they want to receive. The ticket price includes all taxes and one piece of hand baggage, weighing up to 10kg per passenger.
New aircraft orders
In 2010, Emirates, the Arab world’s largest airline, signed two orders at the Farnborough air show worth Dh51 billion for new aircraft and engines
The airline bought 30 Boeing wide body 777-300ER aircraft worth approximately $9.1 billion at list prices and struck an engine delivery and fleet management deal with Engine Alliance to power its previously ordered 32 Airbus A380s. The $4.8 billion engine contract includes complete fleet management with GP7200 engines to power the airplanes.
With the new deals, the Dubai-based international airline once again stunned the recession-hit global aviation industry within a month as the two transatlantic plane makers — Boeing and Airbus — locked horns at the biennial show in their battle for aircraft orders.
Emirates’ Farnborough deals included an order for an additional 30 Boeing 777-300ER aircraft, valued at $9.1 billion in list prices, and two orders for engines. These include a $4.8 billion deal for 32 GP7200 engines to power Airbus 380s with Engine Alliance and a $3 billion order for 30 GE90 for B-777s with GE Aviation.
At the Berlin Airshow earlier, Emirates placed a record $11.5 billion order for 32 A380s with the European plane maker Airbus, bringing its superjumbo orders to 90 aircraft. With the latest deals, the carrier’s total value of orders placed this year alone surged to $28.4 billion.
In 2008, Etihad, which placed the world’s largest aircraft order worth $43 billion in 2008, did not go for any new aircraft deal in 2010. The 2008 order, which was split between Boeing and Airbus, re-emphasised the emerging dominance of Middle Eastern airlines and comes after a $34 billion order from Dubai-based Emirates last year. As of July 2010, the airline operates services to 64 destinations around the world from its home base in Abu Dhabi.
Last month, Air Arabia announced plans to invest as much as $3.6 billion in 44 new aircraft over the next three years to pursue regional expansion plans. “We bought a total of 44 planes and expect to receive them in the coming three years. This will expand our fleet to total 70 aircraft,” Adil Ali, the carrier’s chief executive officer has said. “Total investment in those planes is $3.6 billion. We’re working very closely with the European credit agencies for the financing of the planes,” Ali said. Air Arabia had already received one of the planes, with another one to be delivered before the end of the year. An additional six aircraft are scheduled for delivery in 2011, Ali said.
Air traffic surge
During the first 11 months of 2010, air traffic movements in the UAE grew at an “unprecedented” rate of around 13 .8 per cent year-on-year. UAE’s airports are witnessing strong growth in passenger traffic from Western Europe, the Asia Pacific and India. Passenger traffic from Russia & CIS states and the rest of Eastern Europe is witnessing spectacular growth, although from a very low base. US traffic has also grown strongly at Abu Dhabi. The growth reflects the priorities of the UAE’s airlines. Connecting traffic between Western Europe and the Asia Pacific is a profitable market for UAE carriers, as are the itinerant worker and VFR markets in North Africa and the Indian sub-continent. Emirates has led the way among UAE carriers, launching services to Amsterdam, Prague, Tokyo, Dakar (Senegal) and Madrid this year.
New figures show a surge in air traffic in the UAE during November. According to the UAE General Civil Aviation Authority, or GCAA, traffic increased by 6.9 per cent last month compared to November 2009.
In total, there were 56,654 traffic movements in November —an average of 1,888 per day and the highest level in two years. Flights to Dubai accounted for a significant amount of air traffic, with the emirate reporting 25,363 movements.
Dubai International’s passenger traffic surpassed the four million mark for the second consecutive month in November and for the third time in 2010, according to traffic data released on Monday by Dubai Airports.
The airport handled a total of 4,070,296 passengers, up 15.1 per cent from the 3,535,882 in November 2009. Year to date passenger numbers reached 42,921,782 compared to the 37,123,392 recorded in the corresponding period in 2009, an increase of 15.6 per cent. Routes to and from the Indian subcontinent (+120,534), AGCC countries (+103,536) and Western Europe (+90,550 passengers), recorded the largest increases in passenger numbers.
International freight volumes rose marginally by 0.3 per cent to 192,405 tonnes in November compared to 191,897 tonnes recorded during the same period last year. The subdued growth rate in monthly cargo volumes seen in recent months can be partly attributed to the surge in monthly freight volumes recorded during the corresponding months of 2009 due to improved global economic activity and clearing of inventories worldwide. Year to date, Dubai International has maintained a healthy growth rate with cargo volumes rising 19.3 per cent to 2,081,024 tonnes compared to 1,744,645 during the corresponding period in 2009.
“We are crossing a new traffic threshold, with our average monthly passenger numbers for 2010 shooting up by over 500,000 passengers per month to 3.9 million,” Paul Griffiths, chief executive of Dubai Airports said. “Based on our current growth rates and our projections for next year the four million passenger number should become the norm in 2011,” he said. Also in November, Abu Dhabi International Airport recorded a double-digit growth in passenger traffic during November.
Abu Dhabi Airports Company, ADAC, said the airport registered a 15.4 per cent increase in passenger traffic last month, continuing the positive trend the airport has been experiencing this year. The airport recorded a year-on-year increase of 12 per cent in passenger traffic for the first eleven months of 2010 when compared to the same period in 2009. Passengers at the airport reached 9.9 million up to November end this year compared to 8.8 million passengers during the same period last year.
“As were coming to the end of the year, it is apparent that Abu Dhabi International Airport enjoyed a dynamic growth throughout 2010, further strengthening its position as a major international gateway,” Ahmed Al Haddabi, Senior Vice-President of Airports Operations at ADAC, said.
“The UAE is keen to encourage more air traffic and is increasing technology to help improve handling of flights. The Shaikh Khalifa Government Excellence Programme Award received by the Shaikh Zayed Air Navigation Centre highlights the use of modern technologies and applications in the aviation sector worldwide and we will enhance such use in the future,” said GCAA director-general Saif Mohammad Al Suwaidi.
GCAA’s monthly report for November 2010 showed the number of air traffic movements in each UAE airport. Dubai ranked first with 25,363 air traffic movements. Over flights stood next at 11938 air traffic movements. Abu Dhabi ranked third with 8,293 air traffic movements.
According to the GCAA report, air traffic movements in Sharjah International Airport ranked fourth with 5323 movements. Local flights between UAE airports were in the fifth position with 4230 movements.
Fujairah International Airport witnessed 507 movements, while Al Ain Airport and Ras Al Khaimah International Airport had 173 and 310 air traffic movements respectively. Al Maktoum International Airport witnessed 133 shipping movements.